Payroll: Contractors and Subcontractors

If you are a business owner, you probably have thought about hiring a contractor or a subcontractor to help you with your daily business operations. Both have vital roles, but they are not the same from a legal standpoint. Understanding the differences between contractors and subcontractors is very important for payroll management. 

Payroll can be tricky, especially if it’s your first-time handling employee payroll. The consequences of misclassifying an employee as a contractor or subcontractor can be enormous, including significant fines and lawsuits against you. Therefore, it is essential to understand which employees fall under which type of employment relationship. Join us today to discuss the differences between contractors and subcontractors and how they can affect your business’s payroll. 

Contractor

A contractor is either another company or a person who owns their own business. Typically, you would hire a contractor to complete a set of tasks that you or your current employees might not have the skill set to accomplish. In exchange for a completed job, you will then pay the contractor the agreed-upon amount, and each of you will go on your separate ways. Hiring a contractor might include a business that does:

• marketing
• website design 
• content creation 
• business branding 

 

Although the contractor is working on completing a set of tasks that need to be finished, they are not your employee. Once you have signed the contract to begin work, the contractor will allocate their time to complete the task on the agreed-upon time frame, and in the end, you will pay them for the amount stated within the contract. 

Subcontractor

Now, this is where things can get confusing. A subcontractor is also a business owner. Subcontractors have a set of skills to complete different tasks and projects to help the contractor complete the overall project that you have designated to them. The best way to think about this is that the contractor oversees the project’s completion and coordinates their skills and other tasks to subcontractors to complete the whole project. 

Let’s break this down even further. If your company requires content creation, you might reach out to a contractor specializing in different types of content creation. Once you have signed the contract and the project begins, the contractor might hire a few subcontractors with a specific set of skills to complete, social media captions, blogs, website copy, and much more. Hiring different subcontractors allows the contractor to oversee each job and effectively manage the project to complete it as a whole. It is also important to note that the subcontractor is not your employee.  

How Do They Affect Your Payroll?

The biggest question you may have when hiring either a contractor or subcontractor is how will this affect my payroll? In most cases, you will not be paying your new hire an hourly rate; instead, it will be one flat fee discussed within the contract. Because of this, your payroll will not be affected. 

Since they are not your employees, you will not be responsible for providing them with benefits, such as health insurance, sick time, or vacation. The contractors and subcontractors will be responsible for their benefits and will also have to pay their taxes at the end of each year. 

Contractor and Subcontractor Conclusion

As a business owner hiring a contractor or subcontractor can help alleviate some of the daily stress you may experience. If you need help to complete a specific task or project but don’t have the skillset, then these new and easy hires might be just the thing. Luckily for you, there is little to no effect on your payroll. However, if you are a business owner in the Ormond Beach area and are looking for a payroll service that can help you prevent potential confusion, look no further. Call us today at Vision HR to help you with all of your payroll needs.